Berkowitz's Fairholme Capital Management launched the fund at the beginning of the year and has now opened it to outside investors. Only institutions need apply—and those that do will have to pony up at least $5 million and agree to a one-, three- or five-year lockup. Berkowitz hopes to raise at least $1 billion within a year.

The hedge fund currently manages about $140 million of internal capital and is up 23% on the year. Fairholme Partnership, like Berkowitz's successful mutual funds, employs a concentrated, long-term strategy, and can invest in real-estate, make larger bets than the mutual funds and may even make private-equity style deals.

"The idea is that we would have the ability to make investments that I could not make in the mutual fund, or larger investments that would not be possible," Berkowitz told The Wall Street Journal.

Fairholme Partnership won't charge a management fee; instead, it will charge performance fees on a sliding scale, or between 15% and 25%, based on the length of lockup and subject to high-water marks.